Yahoo revenue drops as display ad business slows

Yahoo's total revenue took a steep dive in the second quarter as it struggled in display advertising, a core market where it has historically been a leader. The company managed to increase its profit by 11 percent, however.

Total revenue for the three months ending June 30 declined 23 percent year on year to US$1.22 billion, Yahoo announced Tuesday. Subtracting the advertising commissions and fees it pays to partners, net revenue came in at $1.07 billion, down 5 percent from 2010's second quarter and below the $1.11 billion consensus estimate from analysts polled by Thomson Reuters.

Yahoo blamed the revenue shortfall on a variety of factors, including its search-advertising sharing agreement with Microsoft, which isn't yielding the results it expected; its divestiture of HotJobs; broadband deferred revenue amortization; and certain fee rate reductions.

Perhaps of more concern is the company's acknowledgement that its display ad business didn't perform as well as expected. "We experienced softness in display revenue in the second half of the quarter due to comprehensive changes we have made in our sales organization to position ourselves for more rapid display growth in the future," Yahoo CEO Carol Bartz said in a statement.

Yahoo has been a leader in display advertising since the late 1990s, but lately has faced tough competition from Facebook and Google, both of which are making strong runs in the market.

Yahoo did grow its net income, however, by 11 percent to $237 million, and its earnings by 18 percent to $0.18 per share, matching the analysts' consensus estimate.

As has been the case for the past several years, Yahoo's latest quarterly financial report contrasted poorly with that of Google, which grew its total revenue by 32 percent in the second quarter to US$9.03 billion. Subtracting fees and advertising commissions, Google's net revenue came in at $6.92 billion. Like Yahoo, most of Google's revenue comes from online advertising.

Google's net income was $2.51 billion, or $7.68 per share, compared to $1.84 billion, or $5.71 per share, in 2010's second quarter. On a pro forma basis, Google's net income was $2.85 billion, or $8.74 per share, compared with $2.08 billion, or $6.45 per share, in the second quarter of 2010.

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